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Re: Where does the 4% for my TTR come from?

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Devotee

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If I access my super on/after my preservation age I can access 4% of the total as a TTR.

 

Where does this 4% come from?

 

Is it 2% of the Tax-Free Component and 2% of the Taxable component or will it use up the Tax-free component and then any remainder comes from the Taxable component.

 

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ATO Certified

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Hi @macfanboy

 

Thanks for your question.

 

Your fund will pay the components of the transition to retirement income stream (TRIS) proportionately to what the components are valued at just before the TRIS commences. This is the same as it would be for an account based income stream that wasn't a TRIS.

 

Firstly, the fund will work out how much of the balance supporting the TRIS is considered to be the tax-free component. This is generally the sum of the contributions segment and the crystallised segment.

 

Secondly, the fund will work out the taxable component. This is simply the opening balance minus the tax-free component. They will then need to determine whether it consists of a taxed element, untaxed element or both.

 

Check out the calculating components of a super benefit page on our website if you want to read about this in more detail.

 

The fund then uses the proportioning rule to work out how much of each income stream payment is tax-free and how much is taxable.

 

For example, a TRIS is calculated to have a $500 000 opening balance with a tax-free component of $150 000 and a taxable component of $350 000. The tax-free component is therefore 30% and the taxable component is 70%. These percentages will remain the same for the life of the TRIS.

 

In turn, if the fund was to pay the minimum of 4%, $20 000 would be the total amount, $6000 would be the tax-free component and $14 000 would be the taxable component.

 

If the fund was to pay the maximum of 10%, $50 000 would be the total amount, $15 000 would be the tax-free component and $35 000 would be the taxable component.

 

Hope this helps.

 

Thanks,

 

ChrisR

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Best answer

ATO Certified

TaxTime Support

Replies 0

Hi @macfanboy

 

Thanks for your question.

 

Your fund will pay the components of the transition to retirement income stream (TRIS) proportionately to what the components are valued at just before the TRIS commences. This is the same as it would be for an account based income stream that wasn't a TRIS.

 

Firstly, the fund will work out how much of the balance supporting the TRIS is considered to be the tax-free component. This is generally the sum of the contributions segment and the crystallised segment.

 

Secondly, the fund will work out the taxable component. This is simply the opening balance minus the tax-free component. They will then need to determine whether it consists of a taxed element, untaxed element or both.

 

Check out the calculating components of a super benefit page on our website if you want to read about this in more detail.

 

The fund then uses the proportioning rule to work out how much of each income stream payment is tax-free and how much is taxable.

 

For example, a TRIS is calculated to have a $500 000 opening balance with a tax-free component of $150 000 and a taxable component of $350 000. The tax-free component is therefore 30% and the taxable component is 70%. These percentages will remain the same for the life of the TRIS.

 

In turn, if the fund was to pay the minimum of 4%, $20 000 would be the total amount, $6000 would be the tax-free component and $14 000 would be the taxable component.

 

If the fund was to pay the maximum of 10%, $50 000 would be the total amount, $15 000 would be the tax-free component and $35 000 would be the taxable component.

 

Hope this helps.

 

Thanks,

 

ChrisR

MVF
Devotee

Replies 2

@macfanboy  

 

The information provided by @ChrisR  is great , however there may be instances where someone has pensions that are purely made up of either a taxable component or tax free component, and when they do they can control how fast they drawn down on each pension because you do not have to apportion pension payments according to the percentage of the different components, (keeping in mind the limitations of a TRIS).   

 

However, you must have used the appropriate strategies for doing this, for example when you become a member of a fund your accumulation account will have a nil balance and then your intital contributions can be the maximum concessional contributions using the bring forward rule.  As your accumulation account interest is 100% non-concessional contributions you can then start a pension (if you meet a condition of release) with your total accumulation account balance and that pension will be 100% tax free.  Your accumulation account will then have a zero balance so you then make concessional contributions for the next three years and each time you do you start a new pension which will have purely taxable components.   By using a strategy like this and never mixing non-concessional contributons with concessional contributions together you effectively only ever a single component in your accumulation acount, and each penson you start are made up of purely one component. 

 

Another way of achieving this if you do not have the luxury of been able to do the prior strategy is to contribute to two seperate super funds and make concessional contributions to one and non-concessional to the other fund.   This way you have two seperate accumulation account interests (one in each fund) and the two different components can never be mixed. Then eventually you can have all your pensions in the one fund by using a re-contribution strategy (discussed below).  There are other strategies that can also be used and I know these strategies are not for everyone, but most people don't think of them until its just too late and they can't seperate the components of their accumulation account interest and they have to start pensions with mixed components.

 

Where a seperate pension account made up of only taxable components can be run down quickly either by drawing higher pension payments or a lump sum and exhausting the pension completely, the funds that have been removed from that taxable penson can then be contributed back into your super fund as non-concessional contributions so you end up with completely tax free components in your fund.  This is known as a re-contribtion strategy.    All of this is subject to conditions of release, total super balance and transfer balance cap rules.

 

https://smsfcoach.com.au/2017/01/13/tax-benefits-of-using-an-smsf-re-contribution-strategy/

 

 

 

 

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ATO Certified

TaxTime Support

Replies 1

Hi @macfanboy

 

Once again, thanks for the question.

 

@MVF has provided some additional information that I thought I should expand on.

 

Accessing your super then contributing it back into the fund is possible as long as a condition of release is met and the fund is able to accept contributions for the member. There can be limitations depending on age, your total super balance and the contribution caps.

 

Regarding using the segregated method when paying an income stream, we recommend that you have a look at the exempt current pension income (ECPI) page on our website.

 

It is important to note that from 1 July 2017 income from assets supporting a TRIS in not ECPI unless the TRIS is in retirement phase. In saying that, if you want to get a better understanding, check out the methods for calculating ECPI link from that page.

 

There are two methods for calculating the amount of ECPI a SMSF can claim:

  • segregated method
  • proportionate method

The 'proportionate' method for calculating ECPI shouldn't be confused with the 'proportioning' rule for calculating the tax-free and taxable components of an income stream. They are two different things.

 

The proportioning rule prevents a member choosing which components to withdraw when a super benefit is paid. This means that they cannot choose to withdraw just the tax-free component.

 

Hope this helps.

 

Thanks,

 

ChrisR

MVF
Devotee

Replies 0

Hi @ChrisR 

 

Thanks for the info, and you are correct I did get mixed up there but I have now updated my response to a more appropriate one ...

 

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